Research Summary: Digitalization has enabled firms with so-called platform business models to emerge in many sectors of the economy. By facilitating transactions between different groups of users (e.g., buyers and sellers), platform firms are disrupting industries around the world. However, little is known about the international strategies of platform firms, as research has mostly examined platforms in single-country contexts. We address this gap by integrating insights from platform research in strategy and economics—specifically the notion of network externalities—with internalization theory. We extend the existing typology of network externalities by distinguishing between within-country and cross-country network externalities. We derive testable propositions regarding the foreign entry modes of platform firms, their international strategic posture (multidomestic vs. globally integrated), as well as foreign market selection criteria and market exit. Managerial Summary: Many companies in the digital economy operate platform business models, which create value by connecting different groups of users, such as buyers and sellers. We examine how network externalities—the notion that a platform becomes more valuable to each user as more users join—influence the international expansion of these firms. We show that it is important to consider the geographic scope of network externalities, that is, whether network externalities operate across national borders or whether platform firms have to create separate user networks in each country. The distinction between within-country and cross-country network externalities affects key internationalization decisions, such as how to enter foreign markets, whether to pursue multidomestic or global strategies, how to select foreign markets, and when to exit from a foreign market.
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© 2019 Strategic Management Society
- digital economy
- firm-specific advantage
- multisided business models
- network effects